When you decide to incorporate a business in the US, one of your first questions might be how much it will cost. The answer depends on your location, what legal services you use and any additional filing requirements. You should also consider ongoing expenses, such as compliance costs.

Knowing what to anticipate when incorporating helps you plan better and avoid surprises. Below, we break down the main costs of incorporation, what can impact costs and what to expect during the process.

What's in this article?

• What are the main costs of incorporating?
  
• How much does it cost to incorporate in different states?
  
• How legal and professional services impact incorporation costs
  
• How to incorporate on a budget
  
• Hidden costs of incorporation
  
• Which tax benefits offset incorporation costs?
  
• How Stripe Atlas can help
  

What are the main costs of incorporating?

The main costs of incorporating in the US typically fall into these categories:

• State filing fees: Every state has its own filing fee for incorporation.

• Legal or incorporation service fees: If you work with an attorney or third-party service to handle incorporation, you need to factor in their fees. If you use a lawyer to draft corporate bylaws, factor in fees for this service as well.

• Registered agent fees: Most states require you to designate a registered agent responsible for receiving legal documents on behalf of your business. You can act as your own, but many businesses choose a registered agent service, which has its own fees.

• Ongoing compliance costs: Beyond the initial incorporation fees, you must budget for annual report fees, franchise taxes, or other state-mandated filings to keep your business compliant. These differ by state but are often required yearly.

How much does it cost to incorporate in different states?

Each state in the US sets its own filing fees and ongoing requirements, so the cost to incorporate can vary considerably by location.

Here are the typical incorporation costs in several popular states:

• California: Incorporating in California comes with a $100 filing fee. California also charges an annual minimum franchise tax of $800 for corporations, which makes it one of the more expensive states for ongoing compliance.

• Delaware: Incorporating in Delaware includes a $109 filing fee. Corporations in Delaware also pay an annual franchise tax, which starts at $175 but increases based on the company’s size and structure.

• New York: New York charges a $125 filing fee and has a corporate franchise tax starting at $25.

• Texas: Incorporating in Texas includes a $300 filing fee. Texas doesn’t charge an annual franchise tax unless the business earns over $2.47 million.

• Florida: Florida has a $35 filing fee and a $35 registered agent designation fee. Florida’s franchise tax acts as a corporate income tax at 5.5%.

Here’s a rundown of the incorporation filing fees in every state as of 2024:

State

• Alabama
  
• Alaska
  
• Arizona
  
• Arkansas
  
• California
  
• Colorado
  
• Connecticut
  
• Delaware
  
• Florida
  
• Georgia
  
• Hawaii
  
• Idaho
  
• Illinois
  
• Indiana
  
• Iowa
  
• Kansas
  
• Kentucky
  
• Louisiana
  
• Maine
  
• Maryland
  
• Massachusetts
  
• Michigan
  
• Minnesota
  
• Mississippi
  
• Missouri
  
• Montana
  
• Nebraska
  
• Nevada
  
• New Hampshire
  
• New Jersey
  
• New Mexico
  
• New York
  
• North Carolina
  
• North Dakota
  
• Ohio
  
• Oklahoma
  
• Oregon
  
• Pennsylvania
  
• Rhode Island
  
• South Carolina
  
• South Dakota
  
• Tennessee
  
• Texas
  
• Utah
  
• Vermont
  
• Virginia
  
• Washington
  
• West Virginia
  
• Wisconsin
  
• Wyoming
  

How legal and professional services impact incorporation costs

Legal and professional services can substantially affect how much you spend when incorporating. The costs vary according to how much help you need. While some people handle the process themselves, many others prefer to use legal or professional services to ensure compliance from the start.

Here’s what these costs might include:

Legal services

You can pay for an attorney to handle your incorporation. Lawyers can draft important documents, such as corporate bylaws, and ensure your business complies with the necessary laws. The complexity of your business determines the cost. This might feel like a big expense up front, but it often helps you avoid legal issues later.

Incorporation services

For a more affordable option, many people use online incorporation services, such as LegalZoom and Bizee. These companies handle the filing and paperwork for you, often at a much lower cost than a lawyer. Basic packages start around $50, but the price rises if you add extras, such as expedited filing, registered agent services, and an Employer Identification Number (EIN).

How to incorporate on a budget

It’s possible to reduce your incorporating costs. Here are some suggestions to do so:

• File the paperwork yourself: Most US states make it easy to access the forms you need online, and filing fees are often the largest cost. If your business isn’t too complex, filing the paperwork yourself can save you from paying for legal or professional services. Remember to read everything carefully to avoid mistakes.

• Stick to basic incorporation services: If you do need help, skip the premium packages and add only what’s necessary. Many services have cheap, entry-level packages that handle the important filing requirements.

• Choose a cheaper state: By choosing a state with lower ongoing fees, you can keep more of your money in your business.

Hidden costs of incorporation

When incorporating, you might have to pay several hidden costs on top of the up-front fees. Here are a few to keep in mind:

• Legal and accounting fees: As your business grows, you might need legal advice or accounting help to address more complex tax filings and compliance requirements for corporations. The cost of these services can accumulate over time, especially if you’re expanding quickly.

• Registered agent fees: If you use a registered agent service to handle legal documents for your business, you need to budget for that cost.

• Ongoing compliance fees: Once you’ve incorporated your business, most US states require annual or biennial reports, franchise taxes, or other filings to keep your business in good standing. These all have different fees attached.

• Business licences and permits: Depending on the nature of your business and where it operates, you might need specific licences or permits beyond just incorporation, especially if you’re in a highly regulated industry. These can increase your startup costs.

• Taxes: Incorporating can change the way your business is taxed, which can lead to additional costs. For example, corporations are subject to double taxation (once at the corporate level and again on shareholder dividends).

Which tax benefits offset incorporation costs?

Certain tax benefits can help offset some of the up-front and ongoing costs of incorporation. Consult a tax professional to see which benefits apply to your situation.

Here are some ways incorporating can help you save money on taxes:

• Corporate tax rates: Depending on your profits, you might benefit from lower corporate tax rates compared to personal income tax rates. This can be especially helpful if you plan to reinvest profits back into the business rather than take them as income.

• Deductions for business expenses: Corporations can deduct a wide range of business expenses, including salaries, benefits, and office supplies. These deductions can reduce your overall taxable income and help offset the costs of running your business.

• Self-employment tax savings: If you are a solo entrepreneur, you might be able to reduce self-employment taxes by paying yourself a reasonable salary and then taking the rest of your profits as dividends, which aren’t subject to self-employment tax.

• Health insurance deductions: If you incorporate as an S corporation (S corp), you might be able to deduct health insurance premiums for yourself and your family and further reduce your taxable income.

Angel investors vs. other types of investors

Before pursuing funding from angel investors, familiarise yourself with other types of startup investors. Here's an overview of investment options:

• Venture capitalists: Venture capitalists (VCs) are firms or individuals that invest in startups showing strong potential for growth, usually in exchange for equity. Unlike angel investors, they typically invest during the later stages of a startup's development, after the business has shown some market traction. VCs invest larger sums of money than angel investors and are usually more involved in the direction of the company. They seek substantial returns and typically have a more aggressive view toward scaling the business and achieving an exit within a specific timeframe.

• Seed funds: Seed funds are specialised VC funds that focus on early-stage investments, often before angel investment and larger VC rounds. They invest in startups that have moved past the conceptual stage and have a minimum viable product (MVP) or some initial traction.

• Incubators and accelerators: These programs support early-stage companies through education, mentorship and financing. Incubators focus most often on the initial development phase, helping entrepreneurs turn ideas into a viable business. Accelerators, on the other hand, look to scale up the growth of existing companies over a short period of time.

• Corporate investors: Some corporations invest in startups to access innovative technologies, enter new markets, or nurture strategic partnerships. These investors can offer ample resources, but they might seek more than just financial returns, such as an ownership stake in the technology or control over the company's direction.

• Crowdfunding: This involves raising small amounts of money from a large number of people, typically through online platforms. Crowdfunding can be a good option for startups that want to validate their product with a broad audience, interact with potential customers and raise funds without giving up equity or incurring debt.

• Government grants and subsidies: In some sectors – particularly those involving scientific research, clean technology, or social impact – government grants and subsidies can provide funding without diluting equity.

• Peer-to-peer lending and debt financing: Debt financing includes loans from financial institutions or peer-to-peer lending platforms. This type of financing is typically more challenging for early-stage startups to secure and it obligates a startup to repay the loan, with interest, but it doesn't dilute ownership.

• Family offices: High net-worth families often have private wealth management advisory firms, known as family offices, that directly invest in startups. These investors can provide substantial funding and might be interested in longer-term investments compared to traditional VCs.

• Angel groups and syndicates: Unlike individual angel investors, angel groups or syndicates pool resources to invest in startups. These groups can provide larger sums of capital and combine the expertise and networks of multiple investors.

Each type of investor offers different advantages, expectations and levels of involvement. Startups should carefully consider their stage of development, industry, funding needs and the kind of strategic relationships they want to grow before deciding which type of investor to work with.